The NSIA
Implemented fully in early January 2022 under the National Securities and Investment Act (NSIA), we have now had over a year of the standalone regime for the scrutiny of, and intervention, in acquisitions and investments in the UK for the purpose of protecting national security. Replacing the powers that the Secretary of State held under the twenty-year-old Enterprise Act, the NSIA implemented a three-pronged attack on transactions that transferred control of entities or assets in the UK which may cause a national security risk.
The NSIA created a tripartite regime of mandatory notification, voluntary notification, and government call in powers to affected transactions.
The mandatory notification regime requires anyone (regardless of nationality or enterprise value) acquiring control of entities operating in certain specified sectors to obtain government consent ahead of the acquisition. Failure to do so will void the transaction and expose the acquiring party to significant sanctions.
The voluntary scheme provides encouragement to those whose transactions sit outside the mandatory scheme but whose parties believe the transaction is of national security interest to inform the government.
And finally, the government call in powers allows the Secretary of State to review any in-scope transaction on national security grounds.
What transactions does it apply to?
The NSIA captures a wide variety of transactions and can be much more encompassing than sellers or purchasers believe. As such it is now becoming an important practice to analyse the applicability of the NSIA to almost every transaction.
The NSIA covers an acquisition of any “control” of an entity. This therefore expands the application beyond just 100% sales, it covers investments, partial sales and joint ventures amongst other transaction structures. Neither is the NSIA concerned with the value of the transaction. The NSIA contains no minimum transaction value for those acquisitions in which it holds interest. As such, the pool of transactions that are impacted is great.
It is likely therefore that many transactions will fall into the category of those captured and therefore thoughts must turn to whether the acquisition target falls into the mandatory notification regime by reason of the sector in which it operates.
Whilst some sectors feel almost obvious to be included, civil nuclear, defence and advanced robotics, there are 17 applicable sectors and wide nets within each. Indeed, any supplier to the ministry of defence is captured, whether the target supplies tasers or tea bags. The ultimate customer of a target is also often important as some select sectors seek to include the entire supply chain rather than just immediate contractors.
Impact on acquisitions
First and foremost a detailed analysis of the applicability of the NSIA should be taken at an early stage of any proposed transaction. In the event that the deal falls within the mandatory notification regime this will have an impact on the timetable of the proposed transaction. The Government have 30 working days to call-in the transaction. This may be extended to 45 days or be paused while further information requests are ongoing. Early notification is therefore key.
Sellers may also wish to understand commentary provided by the Government that UK based purchasers are less likely to be of concern to the Secretary of State, this may have an impact in the pool of potential buyers.
Finally, we have seen that certain due diligence areas are becoming more in depth or laborious than prior to the implantation of the regime. Contracts, suppliers, customers, and technology areas of due diligence are already seeing increased scrutiny.
Listen to our podcast on corporate acquisitions and the National Securities and Investments Act 2021 here.
